New Numbers Could Heat Up Malloy-Hospital Clash

Gov. Dannel P. Malloy has angered hospitals, service providers and legislators by withholding state payments to Connecticut hospitals. (Peter Casolino / Special To The Courant)

With Gov. Dannel P. Malloy and the state's hospitals locked in battle over taxes and mergers, new numbers are expected to add fuel to the debate.

Financial data from 25 of the state's nonprofit hospitals show that the state's smallest hospitals are losing money, whether they are part of a larger system or not.

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However, some larger hospitals lost money in fiscal year 2015, too, such as St. Vincent's in Bridgeport, and the Hospital of Central Connecticut, which is part of Hartford HealthCare's system.

St. Francis Hospital and Medical Center, the third-largest hospital in the state, barely broke even on operations, and because of losses from some complicated financial instruments it owns, it lost $17.5 million.

Other hospitals that had losses last fiscal year include: Waterbury Hospital, Danbury Hospital, Rockville General Hospital and Windham Hospital. Milford Hospital, in the shadow of the state's largest hospital, had the worst financial performance in the state for the second year running, spending 7.2 percent more money than it earned.

Some of the state's small rural hospitals — Sharon Hospital, Day Kimball Hospital, Johnson Memorial Medical Center — have received extensions on filing their financial reports. Day Kimball had sought to join the Hartford HealthCare system, but Hartford decided not to pursue the affiliation. Johnson Memorial, which recently went through bankruptcy proceedings, is in the process of joining Trinity Health-New England, the parent company of St. Francis.

David Bittner, chief financial officer at St. Francis, said even though some factors were shifting in the hospital's favor last year — more private payers and fewer Medicare and Medicaid patients, less charity care, no increase in bad debts — the shift couldn't outweigh federal reductions to Medicare rates and $25 million in provider taxes it paid the state.

The entire system, which includes physicians' practices and Mt. Sinai Rehabilitation center, had a $1.4 million surplus on $814 million in revenues, a profit margin of less than 0.1 percent.

"It doesn't leave enough cushion for anything," Bittner said.

For instance, in November, St. Francis gave 2 percent raises to its employees. That alone cost more than $4 million. Total salaries at the hospital increased by 3.2 percent in the year covered by the report, or $8.4 million, between raises and hiring to fill vacant nurse positions.

Bittner said whether St. Francis stays in the red or goes into the black next year depends on how the state follows through on promised payments. The provider tax, which is levied on revenues, not profits, is partly paid back by the state, but the Malloy administration has delayed some of those payments.

If they come before the end of September, St. Francis will receive $17 million, and "it'll be close," he said.

Hartford Hospital and Yale-New Haven Hospital — the state's two largest hospitals — each had profit margins of between 4 percent and 5 percent. For Hartford, that results in a surplus of $54 million and for Yale, $109 million. Those figures are after paying provider taxes — in Yale's case, $152 million.

The median profit margin for the 50 largest freestanding nonprofit hospitals around the country in fiscal year 2014, according to Moody's Investors Service, was 3.4 percent. The median profit margin for the smallest freestanding hospitals, the report said, was 1.5 percent.

Backus Hospital, part of the Hartford HealthCare system, had the highest profit margin for the second year running. In 2014, its margin was 16 percent, and in 2015, it was 14 percent.

Bridgeport Hospital, part of the Yale-New Haven Health System, had an 11 percent margin in 2015, following a 9 percent performance the previous year.

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Stephen Frayne, vice president of health policy for the Connecticut Hospital Association, said the provider tax that Bittner talked about is "really affecting the viability of small, medium and large hospitals."

Asked how that assertion could be reconciled with the widely varying fortunes of hospitals around the state, Frayne said that every hospital would have had larger surpluses or smaller losses if the taxes hadn't been levied.

Vin Petrini, spokesman for Yale New-Haven Health System, said Bridgeport Hospital is achieving such strong results because it's been "exceptionally good at controlling expenses," but said in 2016, it's projecting a margin of 2 percent or lower because of the bite of the state provider tax.

Although the large systems have argued that small hospitals need to join them to create efficiencies, the fact that Windham continues to lose money raises the question of how mergers improve the financial position of small hospitals.

"Some hospitals have an operating margin -- that is they make money that can be re-invested in the system and in the community. Other hospitals have a negative margin, which means they lose money,'' Harttford Healthcare said in a statement released Tuesday. "The more financially successful hospitals illustrate the changes we are seeing in health care— they have strong, well-developed ambulatory or outpatient networks."

"We are committed to creating an even more efficient, high-quality and well-coordinated health care system designed to reduce costs and improve care for all of our patients and families."

Bittner said Windham's patient volume is down 30 percent compared with last year. According to statements filed with the state, Windham had $77.6 million in patient revenue in 2015. The reduction in revenue from an inability to collect payments from some patients was $4.7 million. That bad debt rate as a proportion of total patient bills was four times higher than at Hartford Hospital, where it was 1.4 percent.

Bittner said the state's smallest hospitals have to join larger networks because even though their profitability may not improve after joining, a larger network can subsidize the losses either through equity contributions or through loans.

If you're an independent hospital losing money year after year, he said, "At a certain point in time you just run out of money to pay your employees and go bankrupt."

Bittner also said the biggest players — and Connecticut Children's Medical Center — can drive harder bargains with commercial insurers, which helps them maintain strong margins.

"If any hospital in the state had the commercial rates Yale had, they would be having significant profits," he said.

Petrini declined to respond to that comment, but said that if Yale wasn't bearing such a heavy burden in state taxes, it could reduce its prices to commercial payers by more than 10 percent.